State Legislative Leaders Continue State Budget Negotiations 

More than a month into the state’s new fiscal year, legislators remain at an impasse on the state budget for FY2023-25 (H.B. 259). Legislative leaders said this week that they have reached agreement on some of the biggest differences between the competing budget proposals from the NC House of Representatives and the NC Senate but that they are still negotiating other budget provisions. Two of the significant issues that appear to have been resolved involve nonprofits, either directly or indirectly:

1. The Senate budget includes steep cuts in the individual income tax rate. Currently, the individual income tax rate is 4.75% for 2023 and is set to decrease to 3.99% in 2027 and subsequent years. The Senate is proposing dropping the rate to 3.99% in 2025 and then reducing it further so that it decreases to 2.49% in 2030 and subsequent years. The decrease in income tax rates is expected to reduce state revenue by about $1.2 billion over the next two years and by $7.1 billion per year once the rate goes down to 2.49%. The House didn’t include these income tax cuts in its budget, largely out of concerns that it could make it hard to generate sufficient revenue to fully fund state functions. Legislative leaders said this week that the final version budget will reduce the individual income tax rate below 3.99% at some point in the future, but they didn’t specify the details of the tax cuts. For nonprofits, the drop in state revenue from lower individual income tax rates could mean reduced state funding for grants and services to nonprofits, cuts in other key state investments like child care or health care, and the imposition of new taxes and fees on nonprofit organizations to make up some of the lost revenue from lower income tax rates.
2. The Senate budget also includes a $1.43 billion appropriation for NCInnovation, a 501(c)(3) economic development nonprofit that works to transform academic research into business opportunities across North Carolina. The Senate envisions NCInnovation using the large appropriation to set up an endowment. This investment in a single nonprofit, which would account for nearly 5% of the total state budget, would be unprecedented. This large investment in a single nonprofit could come at the expense of state funding for many other nonprofits serving a wide variety of communities and missions. The House and Governor Cooper both support state investment in NCInnovation, but both only included $50 million in new appropriations in their versions of the state budget. Legislative leaders said this week that NCInnovation will receive funding in the final version of the budget but didn’t indicate how much and whether it would come at the expense of state investment in the work of other nonprofits.

Unlike with the federal government, the failure to pass a state budget on time doesn’t cause parts of state government to shut down. Under state law, spending levels will continue in place at current levels until a new state budget becomes law. Even without the threat of a government shutdown, legislators have two reasons to try to come to agreement on a new state budget as quickly as possible:

1. Medicaid expansion in North Carolina cannot begin until a new state budget is in place; and
2. Without a new state budget, legislators cannot make adjustments to existing spending levels to account for inflation and new or changing needs in communities, and legislators cannot make changes to state tax laws.

To help your nonprofit better understand the differences between the two competing versions of the state budget, the Center has prepared an analysis of the nonprofit provisions and appropriations in the House and Senate budgets and a tutorial video on the state budget.

Nonprofits Are Important Messengers about Obtaining Free IDs for Voting This Fall

In April, the NC Supreme Court issued a decision reinstating a 2018 law that requires North Carolinians to show photo identification when voting in elections. Many nonprofit organizations have expressed concerns that the voter ID law could make voting more difficult for many people served by nonprofits, particularly seniors, people with disabilities, and low-income citizens. Voter ID requirements will go into effect for this fall’s municipal elections. That means that many North Carolinians who don’t have a current photo ID will need to obtain one in the coming weeks to be able to vote in this fall’s municipal elections.

Nonprofit organizations have historically been among the most effective messengers for educating the people they serve about what steps to follow in order to vote because nonprofits are trusted by the people they serve. Nonprofits often serve people who don’t have photo IDs, so it is important for them to share resources for getting free photo IDs. The NC State Board of Elections (NCSBE) recently explained that voters without photo IDs have two options for obtaining free photo IDs:

1. The NC Department of Motor Vehicles (DMV) offers free photo IDs that can be used for voting. Carolina Demography recently posted information about the 116 DMV offices in the state and the number of voters living in the vicinity of each of these sites.
2. Voters also can obtain free photo IDs from their county board of election. NCSBE explained this week that voters will simply need to provide their name, date of birth, and the last four digits of their Social Security number, and have their photo taken to get these IDs.

For more information, check out NCSBE’s 10 facts about photo IDs for voting. The Center will continue to share information about how your nonprofit can help people in your community understand voting rules as we get closer to this fall’s municipal elections.

DHHS Announces Tentative Plan to Begin Medicaid Expansion on October 1

Last week, the NC Department of Health and Human Services (DHHS) announced that it plans to begin Medicaid expansion in North Carolina on October 1, as long as it has authority to do so by the end of next month. Medicaid expansion will provide health coverage for about 600,000 North Carolinians in the health coverage gap who have incomes too high to qualify for Medicaid but too low to receive health care subsidies under the Affordable Care Act marketplace. In March, legislators and Governor Roy Cooper agreed on a law (H.B. 76) giving DHHS authority to begin Medicaid expansion once a state budget for FY 2023-24 is in place. Legislators had expected to finalize the state budget in June, but House and Senate leaders are still negotiating several key provisions (see the first item in today’s update for more details). 

Normally, it would take several months for a state to get the federal government to approve its Medicaid expansion plans. DHHS explained this week that it has worked out an agreement with the federal Centers for Medicare & Medicaid Services to start that process now, even though the state budget hasn’t passed. DHHS has said that if a state budget isn’t in place by September 1, Medicaid expansion would have to be delayed until at least December 1 – and possibly into 2024. If legislators can’t agree on a state budget before September 1, they could still enable Medicaid expansion to begin on October 1 by passing separate legislation decoupling Medicaid expansion from the state budget.

Medicaid expansion has been a major policy priority for the Center and hundreds of other nonprofits for more than a decade. As we explained in a Care4Carolina blog post last summer, the Center strongly supports Medicaid expansion because it would support the work of charitable nonprofits by:

1. Complementing the work of many nonprofits that provide services to North Carolinians who don’t currently have adequate health coverage;
2. Providing health coverage for some employees of nonprofits that don’t offer group health plans and whose salaries leave them in the health care coverage gap; and 
3. Providing payment for some types of Medicaid-eligible services that nonprofits currently provide to clients for free.

Take Action: Help People Connected to Your Nonprofit Maintain Medicaid Coverage

During the COVID-19 pandemic, Congress created a temporary exemption (known as continuous coverage) from annual Medicaid recertification rules that normally require Medicaid recipients to provide verification of their income, family size, and other information to ensure they remain qualified. The Medicaid continuous coverage provision ended on April 1, and the NC Department of Health and Human Services (DHHS) has begun the process of recertifying Medicaid beneficiaries in North Carolina. Medicaid recipients need to contact their local Division of Social Services (DSS) office to ensure that it has their current contact information. While the process isn’t difficult, many North Carolinians stand to lose their Medicaid coverage if they don’t contact their local DSS office.

DHHS originally projected that as many as 300,000 North Carolinians – many of whom receive services from nonprofits – could lose their Medicaid benefits if they don’t recertify. Many of these North Carolinians may have begun participation in Medicaid during the pandemic and may be unfamiliar with the recertification process. A report from NC Health News indicates that the impact may be even worse than initially expected; in June alone, more than 35,000 North Carolinians lost their Medicaid coverage. Some of the people losing their Medicaid coverage may qualify again once Medicaid expansion begins in North Carolina (see the first item in today’s update for more details), but they will still have a gap in coverage at least through October 1.

Your nonprofit can help make sure that the people you serve keep their Medicaid coverage by sharing information with them about the recertification process and the need to confirm their contact information with their local DSS office. Three nonprofits – The Charlotte Center for Legal Advocacy, Pisgah Legal Services, and Legal Aid of North Carolina – launched NCMedHelp.org to answer questions about NC Medicaid services, including eligibility determination. The website has direct links to each county’s DSS office and information about legal help and health coverage options for people who have lost their Medicaid coverage through this process.

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Nonprofit Policy Update is North Carolina Center for Nonprofits' weekly newsletter of state and federal policy issues that affect all 501(c)(3) nonprofits. Learn about the Center's public policy priorities and agenda, or contact David Heinen, Vice President for Public Policy and Advocacy, for more information.